Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter Earnings Conference call. At this time, all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Senior Vice President, Investor Relations, Frank Golden. Please go ahead.

Good morning and thank you for joining us today. Our CEO, Jim Smith; and our CFO, Stephane Bello will review the results for the third quarter and will update you on our outlook for the balance of the year and also for 2020. When we open the call for questions, we'd appreciate if you limit yourselves to one question each to enable us to get to as many as possible. I'll also remind you, that Refinitiv is not included in our adjusted earnings or in our adjusted earnings per share, and we do not control Refinitiv as we own 45% of the partnership. Now, before we get started, there is one accounting item I will call out, and that is our financial statements for the fourth quarter of 2018 and the first and second quarters of 2019 have been revised to correct the non-material misstatement in each period related to our equity interest in Refinitiv. This misstatement had no impact on revenues, adjusted EBITDA, adjusted earnings per share or free cash flow for any period. We posted revised financial information on our website this morning, and we'll provide revised financial statements in our regulatory filings. Now throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth rates before currency, as we believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You can access these documents on our website or by contacting our Investor Relations department. And with that, I'd like to now turn it over to Jim Smith.

Thank you, Frank, and thanks to all of you for joining us today. Our third quarter results reflect the progress we continue to make across the business. We posted our second consecutive quarter of 4% organic revenue growth, and feel that we are well positioned to achieve our full year 2019 and 2020 guidance targets. The continued revenue momentum is attributable to several positive factors. First, the success of our new AI powered legal solutions, which continue to be very well received in the market. These are now viewed by many customers as a competitive differentiator, and are helping to drive sales and revenue growth. Secondly, these new solutions are leading to higher retention rates, including historic high rates in our Legal segment exceeding 90% overall, with large law firms at 100% customer retention year-to-date. And thirdly, our new customer led approach to building open platforms is resonating in the market. We are also working with our customers to integrate not only a number of our previously disconnected products, but also other tools and databases they need onto our underlying platform. The more we can integrate our offerings, the more tools and capabilities we can offer our customers. Growth is also supplemented by our recent acquisitions, HighQ and Confirmation, which closed during the third quarter, and also by Integration Point which closed in Q4 2018. These acquisitions have come with world-class platforms and talent, and we've begun to roll these solutions out across our sales force. And earlier this month, our Reuters business completed the acquisition of FC Business Intelligence, a fast growing company in the events and marketing space. This acquisition will be rebranded Reuters Events in leveraging the globally recognized Reuters brand with a leader in this space. We expect this acquisition will be free cash flow accretive…

Thank you, Jim and good morning or good afternoon to all of you joining us today. As we always do, let me start by reminding you, that our results exclude the performance of Refinitiv. Also, I will talk to revenue growth before currency. So, on a constant currency basis, third quarter revenues were up 10%. And as you can see, currency had virtually no impact on revenue growth during the quarter. On an organic basis, revenues grew 4% in the third quarter, which excludes the impact of the Reuters News contract with Refinitiv, as well as the impact of our recent M&A activity. As a reminder, this is the final quarter the Reuters News contract will distort our organic results. Turning to profitability. Adjusted EBITDA was $345 million in the third quarter, up 10% due to higher revenues and lower one-time costs in the quarter and despite the dilutive impact of our recent acquisitions. We do expect the margin to be a bit higher in Q4 versus Q3. And importantly, we also still expect our full year EBITDA to end up within the guidance range we have provided earlier. Let me also remind you that Q4 should be the last quarter during which our results will be negatively impacted by these restructuring costs related to the Refinitiv transaction. Now let me provide some additional color on the performance of our individual segments, starting with Legal Professionals. Legal revenues were up 2% during the quarter, with organic revenue up 3%. Our Legal's organic revenue growth rate was negatively affected by about 100 basis points, due to a difficult prior year comparison when we had a one-time transactional sale in our government business that did not reoccur. Therefore, the third quarter revenue growth performance for Legal business should represent the trough for…

Thank you, Stephane. So in closing, we are excited about the opportunities we see ahead. Given the high level of recurring revenue we generate and the inherent operating leverage of our business model, we believe we can continue to progressively increase profitability and free cash flow. This should in turn, allow us to fund both acquisitions and attractive returns of capital to our shareholders, all while maintaining a strong capital structure. Before we get to your questions, I wanted to take a moment to address a story you may have seen in the media last week about our Board hiring a search firm to help with succession planning. I want to assure you, that this is part of our normal course succession planning for all executive roles, and that I'm actively involved in the process. I turned 60 earlier this year, so that process has kicked into its next phase. The Board will evaluate internal successors against a slate of possible candidates outside the firm. That's standard best practice for orderly succession and our entire Board is involved. It has been eight years Stephane and I took over the company in a very different place to where Thomson Reuters stands today. We are proud of all that the team is accomplished in getting us to this place. But we know our jobs include, ensuring an orderly transition of leadership to the next generation, both us and our board are committed to ensuring continuity in both our business and capital strategies. As I told my TRI colleagues last week, I'm not planning on going anywhere soon. When the time comes to hand over the reins, they and you will hear from me. But right now, I am focused on running the business, closing the year strongly, and delivering on our guidance targets for 2020. Let me now turn it back over to Frank for questions.

Thanks very much Jim and Stephane, and that concludes our prepared remarks. And now we'd like to open the call for questions. So if we could have the first question please operator?

[Operator Instructions]. Our first question will come from Vince Valentini from TD Securities.

Thanks very much. Two questions. One Westlaw Edge, maybe this is what you expected to occur, but it's a bit lower than I thought to be at -- only 20% of your customers have migrated to it. Given the power of it and some of the testimonials that customers saying they couldn't live without it, is this you really holding back the pace of migration, could it be faster if you wanted it to, and where do you see 20% going over the next year? I mean, is there a bit of an acceleration to get it up to 50%, or is it, say at this slow steady pace? The second question is just a free cash flow, I did the math pretty quickly Stephane, but just want make sure, I mean if you use 50% to 60%, $1 billion to $1.2 billion in free cash flow next year, it doesn't actually signal dividend growth. Is that a target you work into overtime and you may have to stay a bit above it temporarily? I assume you're not going to trim the dividend, but can you still grow the dividend, even though you're not in that target range yet, if that's how the math works out? Thanks.

You want to take that, Stephane?

I'll take the second question and you take the first one.

Okay.

Perfect. So, Vince, your math is correct, if you do the math and you try to reconcile between our current share count, the $2.40 target that we got out there, you get and the current number of shares that we have, as you get closer to the higher end of the 50% to 60% target. I think that just gets us pretty much at that higher end. So I think what we're indicating here, is that once we start moving lower in that range or the intent of our Board would be to start increasing dividends in line with earning free cash flow. But we are only going to be at the very top of that range next year.

And Vince to your first question. Frankly, it's a very timely question and it's a subject of a good debate inside the company right now. The truth is, early on, as we introduced the product, we wanted to be very careful, as we are testing how much frankly price premium we could get on that product, as we rolled it out. You combine that with the fact that it's a pretty sophisticated tool and it requires training in order to get the most out of it. So we have a full pipeline that occupies our current capacity and as we look to next year -- look, we think it's going to have a lot of take-up. The question is the pace of take-up, and we'll decide when we put our plan together for next year, exactly how we're going to set our capacity to roll it out to do the training and installations that we need to do. So there is a whole lot of runway with these new AI products, and I would expect the pace of adoption to pick up. And we want to do it in such a way that we maintain the premium as well, Vince.

Our next call will come from Gary Bisbee from Merrill Lynch.

So the commentary on buybacks versus dividends, I guess, could you give a little more color on the concept of slowing down buybacks, is that really just more that you've had sort of an outsized amount of that in the last two years, given all the moving parts in Refinitiv? Or should we look at this as sort of a change to prioritizing dividends over buybacks over the long term?

Sure Gary. Look, buybacks are going to continue to be an important lever that we use going forward. But if you look also at our current ownership split, we obviously have really -- have one very large shareholder in Woodbridge. And so relying more heavily on buyback for us, essentially gradually drives an increase -- a decrease in our public float, which we want to avoid. I think -- so that's why, I think as we look at our capital strategy, we think let's use buyback on the run rate basis, at a level that I just mentioned, just to avoid dilution. I also said, when we are faced with a decision about what do we do with large capital inflows we receive from eventually selling down our interest in Refinitiv, obviously, we look at buyback as one potential lever to use these proceeds.

Great, thanks. And if I could add one quick follow-up, just any update on the concept of using -- the strategy is to use commercial levers to drive retention. You mentioned that a bit, but the digital strategy -- just sort of any update on how you're progressing with those? Thank you.

No, look, as we said, I think in our remarks, right. As you look at the Legal segment, in the small law segments, we now are doing 35% of our renewals entirely digitally, which is much easier for customers and also frankly more cost efficient for us. So we are rolling that with the roll-out of our digital solutions across the board. It's being progressive. I think that another element that's also helping to drive retention, is the platform strategy that we that we pursuing, right. We are increasingly selling a number of our products, not as stand-alone products, but very much as part of a platform, which really makes the whole solution more sticky. I don't know Jim if you have anything?

Yes, I mean only thing I would add to that -- I agree with Stephane completely, and I think the more we move the news digital solutions and digital transactions, the more exhaust we get to feed our analytics. And if I look over the course of this year, one of the biggest improvements we've made, is in the quality of our analytics on our markets, on our customers, on the use of our products, and the ability to make our products more useful, and to put together more valuable packages of products, all comes from that -- all comes from those analytics.

Our next question will come from Manav Patnaik, Barclays. Please go ahead.

Thank you, good morning guys. I was hoping you could just give us a little bit more color on the marketing events business that you just acquired and maybe why it seems so attractive now? I guess the impression is events, late cycle, there is probably some risk there. So just curious how resilient this asset has been?

Well, -- look it's -- the way we view that opportunity is, as part of the strategy to add to revenue streams for our Reuters News business, and we have a great global brand there, and if we look at that business. Well, look, it's not huge. I think we've talked about $40 million in revenue. I think we talked about that publicly. But it's $40 million revenue business, and I think it's -- but it's growing nicely and is growing strongly, about 50% of the business in United States, then the rest is in Europe, and a very-very small footprint in Asia. We think with the Reuters -- rebranding that Reuters Events, and using our brand power around the world, we will be able to keep that growth going, and we think it's a great way to have a convening power for both people who would want to come to events around these specific topics. And by the way, many of those are customers for our other Professional Solutions as well. So I think it has a broader impact than just on the Reuters News business.

Got it. And if I could also squeeze in a quick one, just you've done a fair number of -- well, I guess the three decent deals already? Is the pipeline is still active, as maybe you had alluded to before you made these?

Sure. The. I mean -- the pipeline is still active and we are still working the pipeline. I think as we said, we spend about half of the -- well just over half of the $2 billion that we set aside. If we can find the kinds of deals that we have found in the past 15 months, we'd love to spend the rest of that. I think the real interesting thing about that is that we've really kind of changed the criteria and narrowed the criteria that we have for acquisitions, and many of you remember the day when we were doing 20 to 25 acquisitions a year. We are not going back to those days, and importantly, if you look at each of those acquisitions, there is kind of one chunky thing in each of our business units, and the things that are easily integratable. But even more important than that, we're not buying individual businesses with a hope of improving those individual businesses. We're buying are capabilities or platforms or technologies or skills that we think we need to serve our core customers that we're already serving and to serve them with things they're going to need down the road. So the example of that I would give is, if you look at the Confirmation’s piece, that functionality that goes into our Cloud Audit Suite, that was right in the heart of what we sell into our audit customers, in our Tax, Accounting business right. If you look at HighQ, the most recent acquisition, that's a workflow platform, through which we're going to integrate all of our workflow tools with various discrete tools into a platform that will help connect our customers to their customers. So we're looking at things that will be right in the heart of the center of our strategy, if we can find those, and we can find them that make financial sense, and again I will point out, all four of those acquisitions we made will be free cash flow positive in the first full year we own them

Thank you. Our next question will come from Andrew Steinerman, JP Morgan. Please go ahead.

Hi, it's Andrew. Jim, talk about the Legal end market a little bit? Is it changing in any way that's making them more receptive to spend with Thomson Legal, so I'm talking about Legal headcount, or internal budgets for technology and data? And then also when you think about Thomson legal as a vendor, do you feel like you're gaining share from competitors or expanding the market opportunity that you're addressing for customers?

Sure. I think the end markets are stronger, Andrew, I mean not massively so, but that increase for demand, that we've seen, mirrors what I'm hearing from customers. I would say the biggest change I have seen, is the willingness to accept technology solutions, and the eagerness really to embrace technology solutions over the last couple of years and particularly this year. We do a big thought of that in the Legal industry every year in May, and this year, it was -- there has been a remarkable turn in the eagerness to consider platforms and workflow tools. I will just give you a data point, we had a pre-breakfast optional session to present our platform strategy at that conference, we thought maybe 35 or 40 folks would show up. It was standing room only, they were out in the hallway. So I do think there is an increasing appetite to spend on technology that helps them operate more effectively and more efficiently. So I think, look, we're certainly holding our own, in terms of market share against our traditional competitors. But I think where we're making even more gains, is on the areas where we are working to become the kind of technology platform partner of choice in this space, and I think that's where the next kind of big battleground will play out, over the next five years or so.

Thank you. Our next question will come from Aravinda Galappatthige with Canaccord.

I wanted to -- just a quick follow-up for Stephane to begin with and then a bigger picture question. With respect to the Corporate costs the $140 million to $150 million that you're projecting for 2020. I just wanted to clarify, is there even a small CapEx component in that Stephane? And then my bigger picture question is, with respect to operating leverage, Jim obviously gave us some helpful color around what the organic revenue growth trajectory would be like through the business cycle? How should we think about the operating leverage, and as a result, the EBITDA growth arising from that? I mean I know that, much of the heavier spend around sort of building up your newer platforms like Westlaw Edge is behind you. But I suspect there is still some investment that goes in, that would be on the OpEx line. But I just wanted to get a sense of how we should think about the operating leverage going forward? Thanks.

Alright. Let me take your first question and thanks for asking it, I am glad I can clarify it. The number -- the forecast we gave for next year, the $140 million to $150 million, that's 100% EBITDA, that's on the expenses. This year as I said in my remarks, so at the $570 million that we have been guiding toward since the beginning of the year, that includes about $75 million of CapEx, the rest of it is EBITDA. And if you wanted to break down that CapEx over time, I would say we have about $25 million in the first half, $25 million roughly in Q3, and we expect another $25 million approximately in Q4. And on the -- let me try to take your other question, and I think where you are really going with the question over there, is like what's the margin prognosis for next year, and what's the inherent operating leverage of the business. Look, as we now reach that level of revenue growth rate where we are -- right where we really squarely in like mid-single digit territory, the operating leverage is pretty strong in the business. There is no question about that. I would just draw your attention to a couple of things as you look at margins. The first one is that, our News business does not have very high margin. And that's primarily related to that Refinitiv contract we've got about $325 million worth of revenue coming from Refinitiv, which comes with virtually zero margin. So that has a very dilutive impact on the overall margin. Actually if you were to exclude Reuters News from our results, our margins would be about 200 basis points higher than where they are. The second point I would make, is that if you look at the remaining four segments, Global Print, you would expect the margin global print to decline over time simply because it's a highly profitable business, and we don't expect that business to turn to positive revenue growth rate. So that piece will essentially be a drag on margin. In these three other segments, I would expect pretty substantial operating leverage actually, and so overall, when you put all these factors together, we absolutely do see room for our margin to improve, because of the operating leverage that we have in our three main businesses.

Thank you. Our next question will come from Toni Kaplan from Morgan Stanley.

Thank you very much. Could you just give us an update on the shift to SaaS for your Legal solutions? I guess what percentage are you up to, with regard to technology versus content? And just in general Jim, I know you mentioned in response to...

Toni just before you go to your second, just repeat the first one, we're having a little bit of a hard time hearing you?

Sure. I was hoping you could give an update on the shift to SaaS for your Legal solutions, just what percentage you are up to with regard to technology versus content, and just in general, what trends you're seeing with regard to disruption in Legal technology. I know you mentioned a little bit with an earlier question, but that would be very helpful?

Sure. So on the first question, not really talking about just software in total, represented about 31% of revenues for legal in the third quarter. So 69% is still content. So it's still a pretty high weighting toward toward content solution versus software solution.

Yes. And I would just reiterate what I said before, I think the appetite for technology spend is going up, and I think that's what you're seeing in a lot of our investment, and what we are seeing certainly in our dialog with our clients. So I think that's -- as I said earlier, where the game is moving and I would expect that percentage to grow.

Thank you. Our next question will come from George Tong from Goldman Sachs. Please go ahead.

Ryan on for George today. Thanks for taking my question. So you previously discussed that you are intending to accelerate your organic growth through cross-selling and up-selling solutions, and that your customers on average are using less than two. Could you discuss progress with this in where you're seeing the most success? And then, one other quick question, just, I know you touched on the operating leverage a bit earlier, but could you -- do you have any aspirational margin targets or even a range for the individual segments that you're trying to achieve?

Sure, let me take the first one and I'll turn the second one over to Stephane, right, as far as cross-sell and up-sell. I would say, we're still in the very-very early days of cross-sell and up-sell, and if you think about how this year has progressed and the third quarter -- the end of third quarter last year, we completed the Refinitiv deal and we came into this year, sales versus all realigned and trying to come out of the gate really strongly, pushing cross-sell up-sell. Second quarter, we really started to hit our stride, and frankly what we started learning was, what was working best, right? We are gearing up our analytics, and we are seeing clear opportunities for up-sell cross-sell, and we have a lot of folks in our sales forces who are very excited about those opportunities. What we've been working through in the third quarter, is the notion that all products aren't created equal, and I mentioned earlier, the better analytics that we have, we're using those analytics define what the best opportunities are, you know, to kind of blend a solution together, not necessarily -- we don't think about it quite so much anymore, I don't think about it so much anymore, as how do we cross sell individual products, but how do we combine services or capabilities, and then how do we commercially price that. And I think that, we have a lot of room for enormous uplift there, but we're early days and I just would share with you, that I'm thinking of it more about kind of how do we crack propositions for the various market segments, and looking more at the total uptake and the total amount of revenue we get from a particular customer, which is driven under the covers by cross-selling and up-selling more products within -- in probably a different way in the future. Stephane?

And on your second question, we don't really have a specific aspirational margin target, because as Jim likes to say, right and he described it very well in the value creation model that he spoke about earlier today, our main goal is to achieve the maximum possible rate of free cash flow per share growth, it's not really margin growth, it's how do we drive free cash flow and free cash flow per share. That's frankly what is driving our incentive plans. That's what we think creates the most value for investors over time. And then we will decide how we use the flow through the operating leverage that the business generates now, whether is to reinvest in the business organically to drive growth, which may put little bit pressure on margin or on this operating leverage, or whether related flow through to margins. But it's free cash flow per share we are very much focused on.

Thank you. Our next question will come from Doug Arthur, Huber Research.

Yes, thanks. I'm not sure if there's a way to disaggregate this, but as you sort of look at your organic growth progress and your goal in 2020, is there a way to sort of box the impact of the new products? I mean you have a lot of new product initiatives virtually across the board, is there a way to sort of quantify the impact that's having on organic, and I assume impact to be greater in ensuing years?

Now, that's a really tough question, Doug, because I mean if you look at new products like -- take Westlaw Edge, for instance, right, new product of course. A lot of the growth we're getting from Edge is because the much higher functionality of the product, much better subset of products enable us to sell it at a price premium. So is that price or is that new product? So it's really hard to break it down for us, the way you just described to be very honest.

Thank you. Next question will come from Tim Casey, BMO.

Yeah, two from me. One, Jim, just when -- you look at the macro trends out there in terms of global trade and the increasing complexity on that, you're now mostly a U.S. business, but you do have a number of multinational clients. Are you getting any bump from the complexity there, which is usually good for the business? And second, just on print, you've acknowledged you're surprised by how it's performed. But what's -- when you peel it back, what's going on underneath there or/and like, are you just -- are we just delaying the pain, if you will, and are you expecting it to have a -- the better year, you've had this year, you give it back and have a worse year next year? Thanks.

Okay. I will try both of those and Stephane can jump into correct or I’ve got my answer. I was just with, -- I think you're exactly right on the first one, I apologize I was thinking of the second one. I think the increasing complexity is helping us around global trade, and that's why we bought the Integration Point business, because we thought we needed to global platform to serve those clients. I was just down a few weeks ago with the team at Integration Point, and with some of their clients and their customers, and the opportunity for us to -- if you look at the capabilities that we have between our current existing global three businesses, and with the team at Integration Point. I think it’s absolutely unrivaled what we're going to be able to provide to customers. And also if you look at where we are and then you look about what we can add to the workflow tools that we're providing, I think it's a great opportunity for us. And so the short answer is, that complexity in global trade is indeed -- isn't the driving opportunity for us and I think it's going to be a significant growth factor going forward. In fact, we're having that team present to our Board of Directors next week in Dallas.

On the second question. I'd say look, the success we're seeing in print is partly attributable to all the factors we described in our remarks, right, like a really great job for the team in leveraging their scale globally, from all the practices that we have implemented in the U.S. and really use that to drive better growth, in terms of less decline, but also better cost efficiencies. There is also the backdrop of a good market environment, obviously, with Legal demand being at the highest level we see a number of years, that certainly helps. We don't expect the -- I mean we are in the midst of our plan right now, but at this stage we do not expect to have to give back anything that we've earned this year and into next year. We would actually expect based on what we think, pretty similar type growth rate for print next year, as we see this year. Again that will be partly a function of the environment, but if it stays where it is today, we certainly would not expect much change in terms of a big deterioration.

Yes, if I could just add to that, I would have to add that the team in Global Print is just doing a terrific job and kind of reimagining those customer relationships. And I think Tim, Elizabeth Beastrom led a real turnaround in that organization to begin thinking about a group of clients that were print only customers, and think of that as an entry way as a client and a customer, and how can we build out more holistic relationship with all those customers, of which print is only a part of that relationship. So I think that's highly encouraging and then, kudos to the team for continuing, particularly the guys in the plan, who are continuing to find ways to take costs out and be more effective and more efficient. So it's encouraging and it is surprising. But as Stephane said, this is not something we think we're necessarily going to give back. I don't think we're going to change the overall trajectory per se, but I think we can stem it, and continue to stem it, and I think that they have certainly proven that they can surprise us on the upside. But the other thing I would call out in terms of Print is, this year is the first time we've put all of our Global Print under one management team, and I think we're seeing the benefits of doing that with best practices really being spread around the world.

Operator, we'll take one final question, please.

Okay. And that will come from Kevin McVeigh, Credit Suisse. Please go ahead.

If you said this, I apologize, I guess what gave you the confidence to boost the organic growth, the 50 bps in '19 and when -- should we expect that to flow through into 2020 Stephane or are we just being conservative at this point?

We really haven't changed anything to the guidance we gave last quarter, Kevin. Last quarter, we did increase our guidance for this year and for next year, very slightly. So we just kept it at the same level as what we announced last quarter.

Okay. So it was the organic. Maybe I misread that. I apologize. And then -- okay, so then just real quick…

I think what Jim said is that, if you -- so for next year we expect organic growth of like 4.5%, and we expect the acquisitions we've made to-date to add about 100 basis points. So the total growth rate, as we see it now, somewhere between 5%, 5.5%, and as Jim said, it may change if we do more acquisitions of course.

That's helpful. And then as you kind of shift the Legal, as that goes more toward software, I think you said 30% today, 70% content. How does that impact the margin over time? So as you kind of shift that -- as it remixes more toward software, what's the margin impact on that? And any sense of how long that should take as you kind of shift again more toward software as opposed to the content?

If you look at the Legal business specifically because the revenue base in our content business is so large, it has pretty attractive margins. So as this software is a highly repeatable business, and it has very nice margins, but the content has pretty decent margins itself. So I don't think there is a major impact, they are both quite attractive businesses from a margin perspective.

Alright. That will be our final question. We'd like to thank you all for joining us today, and we will speak to you again in February when we report Q4. Have a good day.

Ladies and gentlemen, this conference will be available for replay today from noon Eastern Time through November 7th at midnight. You may dial the access code -- you may access the recording by dialing 1-800-475-6701 and entering the access code 471905. International participants may dial 320-365-3844. Again those numbers are 1-800-475-6701.